Good morning everyone; hopefully we are all having a great weekend. I am aware that I have been quiet for the last few days but for a good reason – WE HAVE EXCHANGED CONTRACTS!! 😀 – Our new house is officially ours! We get the keys next Friday – officially the last day of the UK government’s stamp duty relief to first time buyers. (We save on a 1% tax of the house price)! Anyway, as you can imagine; Mrs Scot and I are DE-Lighted!
If you read my earlier post on ‘How to Get a 100% L.T.V. Mortgage‘, you will know that Mrs Scot and I are taking out a 100% Mortgage by using equity from my Dad’s house towards a deposit on our new house. To cut a long story short, this unlocks fantastic interest rates; 4.19% Vs 6.99%! Taking in to account our current rent and council tax situation and comparing that to our new mortgage and council tax; it is staggering to think that we are only going to be paying approximately £50 a month more ($75) than what we do today!! Mrs Scot and I have talked through the whole mortgage situation and have decided that we want to pay it off as soon as possible. We are committing to make over-payments on our mortgage, with the intent to pay it off within 10 years. In the mean time, we have to buy furniture, fund our Honeymoon and LIVE! 🙂
We Have Taken Out a New Credit Card
This heading will probably upset 90% of PF bloggers in the world, but let me explain. Mrs Scot and I are young professionals – We both have well paid jobs and are recent graduates. I am due 2 pay rises this year and Mrs Scot works on commission (neither of which we account for in our budget). Given that we have just bought our house and have been living in furnished rental accommodation since we left home (about 6 years ago), we have a lot of things to buy for our new home. We have been fortunate enough that our current rental property is partly furnished, thus it provided a transition period to buy some of our own furniture. We also received some fantastic pieces as a wedding present (like a beautiful bed and various other things). Also, Mrs Scot’s parents have a lot of great furniture in storage – excess after moving which we can have 🙂 ! Albeit, there are still some big items that we need to purchase:
- Dining Room Table & Chairs
- Dressing Table (My Wedding Present to Mrs Scot)
- TV Stand
The above list is by no means exhaustive, (we plan to buy a new corner sofa, TV, BBQ etc.) but these are the immediate priority. Although I am extremely frugal/savvy with money – I believe in buying quality so that you only have to buy once. The above list will cost as a little over £3000 ($4500) but should last a lifetime. Furthermore, if we buy the items together, we can get a great deal from the furniture outlet. I have already started negotiations with one of the sales staff.
Just a side note on furniture outlets etc. – If the outlet has a fancy showroom and a huge team of sales staff in a central location – be cautious. Consider the markup that must be on the products in order to fund these things! You can often go and view the furniture etc. in these fancy showrooms and take a brochure away which details the brand and lines of the furniture and products themselves. It is then possible to check directly with manufactures on prices – and with other outlets in the area (sometimes going direct is not the cheapest). The shop that we are going to be buying from has a very clumsy showroom which is nowhere near as glamorous as other shops. The place is a busy and crammed and looks like a maze – with very few staff. This is a great sign that they are working to lower margins. (I checked their prices online and with other retailers to verify this)
SO – We have taken out a credit card which is interest free on purchases for 15 months. This means that (providing we make the minimum payments) we can effectively buy now and pay later – for free. We will be disciplined and maximise our monthly repayments to take full advantage of the interest-free period.
After all, this method beats any sort of finance scheme that shops can provide – and the furniture will last a lifetime. We will have children at some point in the future, so are trying to take full advantage of our years as DINKYs (Double Income No Kids Yet) to buy nice furniture and pay off our house. I have a feeling we will need a lot more money for other things when that time comes….
I would like some reader input – What are your thoughts? Do you agree with our method of purchasing good quality furniture on an interest free card? Or would you personally buy cheaper furniture now and replace it later?
Emily @ evolvingPF says
I think this is a classic we-just-bought-a-house move, and no, I don’t agree with your method. I would get the good quality furniture but I would buy it with cash, one piece at a time as I saved up. That’s how I furnished my first apartment. And if you want to buy all the pieces together to get a better deal, why not save up in advance and buy them in a few months? I think anyone would be more motivated to earn and save so he can buy some furniture rather than to pay off furniture he’s already bought on credit. I hope you are able to pay it off before your zero interest period ends, but you don’t know what the future holds and something could come up that demands your yet-unaccounted-for income.
Agreed. Don’t play house; our parents worked for decades to acquire the lifestyles to which we were accustomed living in their houses. Just going out and buying everything on credit, for which you don’t have the cash to pay for today, is extremely irresponsible regardless of how disciplined you may be during repayment.
My furniture, electronics, etc. have been built up over time. I initially acquired the essentials by begging and borrowing from family. A lot of the “begged” items turned out to be a fantastic value because they were high quality.
Now, after several years of working, I have a 51″ plasma and a pillowtop mattress. But they were all paid for with cash. I guarantee that diving headlong into a bunch of major purchases at once will mean that you won’t get the best possible deal on each of those items. You won’t be as careful, and you won’t feel the same pain of parting with your dollar, guaranteed. Regardless of your presumed volume discount, this is not a frugal strategy. Stick to Kijiji (Craig’s List), family/friends, Freecycle, thrift stores, etc. for your furniture.
An actual impressive approach, rather than saying “yay I got approved for credit I’M GONNA BUY EVERYTHING” would be to continue living as simply as possible. You’ve got a 100% mortgage; that’s how Fannie Mae and Freddie Mac got America headlong into financial crisis. The responsible thing to do would be to pour all of your earnings into getting rid of that crushing debt. If you’re only considering your mortgage and taxes, I’d be nervous. Maintenance is essential to maintaining your homes value and it’s expensive. Also is the interest a 10 year term? Can you save lots of money beyond what you put into the mortgage? If not, is it actually going to take you a full decade to pay off? Do you and your wife have pensions through your work? Could you still thrive if one of you got laid off or, god forbid, one of you were disabled?
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Thanks everyone for your comments –
I think I should give a little more information on our financial situation:
After making standard monthly payments on our mortgage, budgeting for all our fuel, savings, food, taxes, emergency fund etc. we are left with over £1000 a month ($1600) excess. This is a minimum base salary. Mrs Scot makes commission on top of this (varying from a 100 to 1000s). My work has a share match scheme where they will match 2 for 1 on every share that I buy (up to a certain monthly limit). This is matched tax-free, providing I leave it in the account for 5 years. The money is available to withdraw at any time should there be an emergency.
I have a final salary pension scheme – for every year I work with my company I accrue a little under 2% of my final salary – for example if I work until I am 60 (retirement age with my company) I will have around 70% of my final salary as a pension – one of the best schemes that exist and I am lucky enough to be in it. In addition to this, Mrs Scot has a pension through her job. My job also offers life insurance, should I become disables (on or off the job) I get a lump sum of 3x my salary. My pension and benefits scheme also offers life insurance.
The House is in immaculate condition and needs no work doing to it just now. It has recently had a brand new kitchen and new flooring throughout. It will require minimum maintenance – but as an Engineer and DIY fan – I am fairly sure I can take care of most things myself.
The credit card to buy furniture is a short term measure. I agree that it is not the most responsible thing to do, but considering I am due 2 pay rises this year and Mrs Scot’s earning of commission (in addition to the $1600 odd extra we are left with each month) I am confident that we can take advantage of this arrangement and pay it off within the interest free period.
We could wait – but why wait when we can enjoy the furniture now from the start?
Very good response in that your current financial situation makes me much less nervous about your purchasing of household goods on credit.
While I don’t think it applies to you, I’d caution anybody about any Employee Share Ownership Program (ESOP). My concern is that they promote un-diversified portfolios; in situations like Enron, Nortel, etc. it can be even more disastrous. Getting 2 shares for 1 is a fantastic deal, however, and if it pays a decent dividend, you’d be getting your money back within just a few years anyway (just be careful to invest the $$$ in other assets lol).
Again, however, I’d challenge you to ask yourself: do you think that, in sum, your price will lower than if you carefully (over some time) purchased (or found/asked for gifts for/traded for) each item individually?
If you’re certain the answer is “yes” then by all means do it — but put up the itemized receipt for our savvy scrutiny 🙂
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In repsonse to the first comment: Without giving too much away, my company’s shares are fairly secure – I work for a huge ‘bluechip’ organisation. I will only ever keep them in the scheme for 5 years (the minimum required before you can withrdraw tax-free contributions in the UK) before reinvesting and diversifying my portfolio. The dividends are also fantastic 🙂
In response to the furniture comment – I have further explained the situation on Emily’s comment – I feel that the furniture will immediately improve the quality of our lives – enabling us to host family/friends etc. Sometimes you can’t put a price on that!
I appreciate you taking the time to comment Emily – Thanks!
I have given some more details on our financial situation on another comment. Hopefully after reading that you will perhaps understand why we made this decision.
Emily @ evolvingPF says
The added details don’t change my opinion. Why can’t you just wait 3 months or even less to save up the $4,500? Personally, I don’t consider not-having-furniture to be an emergency must-rectify-it-now situation. I spent $50 on an air mattress and slept on it for 2.5 years because I couldn’t afford a bed, so you’re not going to convince me that you NEED a sideboard or a bookcase right this minute.
As I said, I do wish you well and that nothing prevents you from paying off the credit card before the interest rate kicks in. And it’s your life so obviously do what you want! I just expressed my opinion because you asked for them. I think that’s one of the interesting things about having PF blogs – you get a glimpse into other people’s standards and decision in a very intimate way that can cause you to re-examine your own choices.
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Of course we CAN wait… but why wait when we can get it now. We have budgeted to repay the money in 10 months – leaving a 5 month safety net. Given that we are going on honeymoon soon, it would take about 6 months before we could save up the money for the furniture. This way, we can enjoy and use the furniture (host family and friends for meals etc.) and greatly improve the quality of our lives immediately, instead of waiting. There is little risk involved and we can use the 0% to our clear advantage. Furthermore, it is not like a horrendous ‘buy now pay later’ scheme where you can be charged the whole interest amount if you fail to pay it off within the interest free period.
I am not saying we NEED these items, but rather they will greatly improve our lifestyle. I think sleeping on an air matress for 2.5 years is a little extreme; not to mention the possible long-term risks associated with back problems. I strive to find the balance between being Frugal and Stingy. Our decision has meant that we can look forward to a summer of entertaining and hosting family/friends.
I very much appreciate your opinion and am not slagging it – Afterall, discussion would be boring if everyone had the same ideas 😉
Mochi & Macarons says
1. Hearing that you want to buy a wedding present on credit makes me very nervous 🙂
It’s like saying you want to buy birthday presents for someone, with their own money…..
2. Even though it is 15 months at 0% interest, that’s a dangerous path to go down on… You never know what could happen — lost job, sudden health issues, etc.
3. I would opt for #3 — live without the furniture entirely, until you have the cash to pay for each item, starting with priority #1 and so on.
I wouldn’t bother with bad furniture if you are the type of people who care about having nice furnishings (I’m happy with Ikea, honestly…)
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Hey – Thanks for taking the time to comment. Much Appreciated.
I have given some further details about our financial situation in one of the other comments. Hopefully this will help you to better understand our logic. In regards to furniture quality – I would much rather buy something once and never have to replace it again. I have had IKEA furniture etc. whilst at University and know that it doesn’t last forever. Don’t get me wrong, it is great as a temporary measure, but a set of quality matching pieces of furniture should last a lifetime and a future family.
Jeremy @ Modest Money says
I guess I am in the 10% of PF bloggers who has no problem with credit card usage in this scenario. It’s not as if you are charging a bunch of things you don’t really need without know whether you will be able to pay it off. It is stuff that you truly need to fully enjoy your new home. Since you and the wife have well paying jobs, it is quite unlikely that you would be unable to pay it off.
Credit cards do generate all kinds of negative reactions, but used responsibly they can be a money saving tool. Avoiding credit cards isn’t really a one-size-fits-all piece of advice. If you are savvy with your money and can be disciplined, by all means take advantage of credit card perks.
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Economically Humble says
I too think its okay as long as the credit card was a points card. 🙂 But generally I would be more timid with the purchases and slowly build up to a furnished house. Heck, finding the right items could turn into a fun reason to travel around the state on a treasure hunt (though of course I think think travel is a valuable and appropriate expense).
In any case, congratulations on the new home and wonderful interest rate.
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Hey and thanks for commenting! The big items that I listed were deemed essentials. There are lots of other things that we are going to bargain hunt and build up over time – We just wanted to get those big ticket items from the onset. 🙂
Thanks for the congrats – hopefully you will stop by again soon
Exactly – Thanks for taking my side on this one 🙂
I have actually given more details of our financial situation on one of the other comments. Hopefully this fully justifies my logic! I feel that as you say, the items are essential. They will improve our quality of life and we can benefit from having them sooner rather than later!
Why not get something back from the banks now and again right?
Kris @ BalancingMoneyandLife says
Since I live in a glass house, I will not throw stones. We bought all our appliances for our new house on a 0% interest for 2 years plan; it comes due this June, and we have it almost 50% paid off, plus another 30% already put away to pay it off.
I will say, it can be dangerous; we had significant financial setback that could have prevented us from paying off that bill, and that would have cost us over $4,000 in interest had we failed. YIKES!
Love the new blog header, BTW! Very sharp looking!
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Thanks Kris 🙂
Glad that you are taking a somewhat middle ground. I agree there are always unforeseen circumstances that can arise – I am proceeding with caution! Thanks for the comments on the new Blog header – I got it done on fiver 🙂 !!
HUGE congrats on the new house – I think the credit card thing is fine. I don’t have one but at the moment I’m only living in rented accommodation with my boyfriend. If I was to move into a house that I needed furnishing I wouldn’t hesitate to take one out. You just need to make sure that you’re sensible with it xx
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Hey Jen – Thanks 🙂 I agree, being disciplined is key… Will make sure that it is used for intended purposes only. To be fair I already have 2 other cards with about 12k worth of available balance (they are both clear) so I feel that I can be! I think that there are two distinct differences in opinion on this situation! Glad you agree avec moi!
The Happy Homeowner says
Congrats on the new house; how exciting! At first glance, I’d scream, “NOOOO” to your plan, but after reading the extra income/financial situation information you provided, I’d say it’s OK as long as you’re 100% positive you will pay off everything before the interest kicks in AND that you don’t overspend just because you can right now.
Keep in mind that jobs can change in an instant so as long as you have a great e-fund and other contingency plans in place, have fun shopping! 🙂
Hey! Thanks for taking the time to comment – mucho appreciated!
I am convinced that I can pay it off in time – I have budgeted to repay within 10 months, with 5 months as a sort of contigency. I feel that this adds a layer or protection to the plan. Furthermore if Mrs Scot earns commission through her job, we will use this to pay it back too. 🙂
Frugal Fries says
You can get a lot of AWESOME furniture for incredibly cheap, but you need to be patient. When we first moved into our apartment, we bought a lot of stuff through classified advertisements, garage sales and via Craigslist and Kijiji. Sometimes the pieces needed a sanding and new paint, but they were very good quality and seem like they will last a long time.
Eventually we will replace these pieces, but I dont even know if we would do so with new furniture (unless it’s a bed or upholstered). Secondhand is the way to go! We paid for everything with cash of course, it really put a dent in our savings.
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We did have a look at some second hand adds, but wanted to get a matching set. Unfortunately these were few and far between and we had already fallen in love with an oak furniture range. They all match beautifully and have a consistent design. I will post some pictures when they arrive on Saturday 🙂